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The WTO Vote: The Wrong Whipping Boy

Critics of the World Trade Organization (WTO) have painted a distorted picture of its role and power. The liberal trade regime the WTO seeks to promote neither encourages nor inhibits the efforts of nations to balance market objectives with social ones. Trade liberalization has not undermined the mixed economy or led to a regulatory race toward the bottom. It has not forced nations to reduce social welfare expenditures, and in recent decades, the world's rich and middle-income countries have steadily strengthened rather than weakened their health, safety, and environmental regulations.

According to a report recently published in the Financial Times, rich European countries with high wages and extensive welfare states constitute nearly half of the world's 20 most competitive economies. Moreover, a number of these countries, including Sweden, Denmark, Germany, and the Netherlands, have enacted cutting-edge environmental standards.

Additionally, the WTO has not limited the ability of developing countries to recognize trade unions or otherwise protect the rights of workers, including by imposing restrictions on child labor. In fact, it is workers in the world's more open developing economies who have experienced the most substantial increases in wages and living standards over the past two decades.

If trade unionists and other liberals are concerned about worldwide labor and human rights, the WTO is both the wrong whipping boy and the wrong instrument of redress. The organization is not in a position to establish or enforce global social standards for the simple reason that hardly any of its 135 members want it to do so. Activists in the West who are concerned that developing countries are dragging down worker rights worldwide or undermining global environmental quality need to find alternative strategies for challenging such policies.

Liberalizing international flows of goods and capital does not require nations to weaken their regulatory controls over business. The WTO has no authority over anything a nation produces and consumes within its borders--which, in the case of the United States, amounts to 90 percent of GDP. Nations are generally free to impose any regulatory standards or taxes on the transnational movement of goods or capital they wish, provided they are applied in a nondiscriminatory manner.

Much criticism of the WTO has focused on two key rules governing international trade: The most important has to do with the distinction between a product and the way it is produced. The WTO's rules generally limit the ability of a member nation to restrict imports on the basis of how products were made. This means, for example, that the United States cannot restrict imports of products that damage another country's environment or that are produced by child labor; nor can it use nontariff barriers to pressure its trading partners to adopt American environmental or labor protection standards as a condition of access to the U.S. market. This was the key issue in both the tuna/dolphin and shrimp/turtle disputes often cited by environmentalists as examples of how the WTO undermines domestic U.S. standards by permitting the imports of products produced with weaker standards.

Secondly, in the specific case of criteria for imported food, these must conform with generally accepted international scientific standards. The United States prevailed in the beef hormones dispute with the European Union (EU), where a WTO panel rejected European complaints because the five disputed hormones approved by the FDA had also been certified as safe by an international standards body known as the Codex Commission.

These rules exist not so much to protect multinational corporations--who have rich, powerful governments like the United States to look after their interests--but to protect producers from poorer, less powerful countries. It is significant that in the three cases in which U.S. environmental regulations were successfully challenged under General Agreement on Tariffs and Trade/WTO rules, the principal plaintiffs were Mexico, Thailand, and Venezuela--all developing countries--while each of the regulations in dispute were strongly backed by American multinational firms. In fact, the WTO's ruling in the Venezuela gasoline case shows the principles of trade liberalization at their best: By requiring the import of less expensive gasoline sold by independent distributors in the Northeast, the WTO dispute panel saved American consumers millions of dollars without sacrificing American air quality. The only loser in this decision was the American oil industry, which somehow managed to confuse environmentalists into equating market protectionism with environmental protection.

But what happens if a nation decides to restrict imports on the basis of criteria that run afoul of WTO rules? Unlike other international bodies such as the International Monetary Fund or the United Nations, the WTO has no direct or indirect enforcement powers. If a dispute panel determines that a nation has imposed restrictions on imports that violate its treaty obligations, WTO rules permit the aggrieved nation to raise its tariffs by an amount equivalent to the losses experienced by its exporters. But since the tariffs of the nation filing the complaint were lower to begin with due to the WTO, all the imposition of such punitive tariffs does is restore some of the trade barriers that would have existed without the WTO. This hardly represents an assault on democratic government by an undemocratic institution.

Moreover, WTO rulings only apply to governments: Consumers remain free to use boycotts and other means to pressure foreign and American companies to behave more more responsibly, and such pressures have in fact forced many American firms to improve working conditions and environmental practices in the third world.

Nonetheless, the backlash against trade liberalization needs to be taken seriously. In light of the considerable achievements of the Uruguay Round in lowering trade barriers, starting another new round may have been premature--particularly in light of the defeat of fast-track renewal in Congress in 1997. Now, the world may need more time to digest the Uruguay Round before embarking on another.

One approach to reforming the WTO is to carefully expand the grounds on which a nation can restrict imports without facing the threat of economic retaliation. These reforms might, for example, allow restrictions on imports produced in ways that violate core International Labour Organization (ILO) standards or the provisions of international environmental agreements. But such rules--which are the only enforcement mechanism available to the WTO--must be carefully designed as their use is apt to be resented by the majority of the world's nations.

Mexico, for example, has strongly opposed even the most modest efforts of Americans to enforce the environmental side agreement of the North American Free Trade Agreement. Significantly, not a single middle-income or developing country--several of whom are democracies with influential left-of-center parties, independent trade unions, and domestic environmental groups--has supported expanding the WTO's authority to permit trade restrictions against nations with poor working conditions or irresponsible environmental practices. They fear, with some justification, that any such authorization would be exploited by American and European firms and workers to protect their profits and jobs.

In the short term, the WTO needs to figure out how to avoid ruling against politically popular import restrictions--even if such rulings, as noted above, do not require a nation to change its regulations. For its part, the United States could help by not even bringing such controversial cases: A WTO ruling against the EU's restrictions on imports of genetically modified foods, whatever its legal merits, would be a political disaster for future trade liberalization. At the same time, both the European Union and the United States could reduce trade tensions by resisting demands from domestic producers to adopt regulations that are really disguised trade barriers.

Membership in the WTO is compatible with a wide variety of socioeconomic systems, ranging from social democratic Sweden to authoritarian China. That is both its strength and its weakness. It is a source of strength in that a liberal global economy permits nations to maintain socially progressive mixed economies. But it is also a source of weakness in that economic globalization also permits nations to maintain regimes that oppress workers and abuse the environment. If we want to change the latter, we should stop focusing on the WTO and put our political efforts into devising international institutions and political strategies that can effectively promote the "export" of Western values, without unnecessarily antagonizing other countries. One such strategy is to strengthen the capacity of international organizations, such as the ILO and the United Nations Environmental Program, to monitor and enforce compliance with international treaties and agreements. Another is for both trade unions and environmental groups in the West to work directly with their counterparts in developing nations to strengthen the latter's capacity to change the policies of their own governments. The WTO is neither the source of the world's social ills nor the solution to them.

About the Author

David Vogel is a professor at the Haas School of Business and in the University of California, Berkeley's Department of Political Science. He is the author of Trading Up: Consumer and Environmental Regulation in a Global Economy.